Consumers Win; Bureaucrats Lose

The Trump Administration decision to roll back the second phase of Obama’s CAFÉ standards is a small v victory for consumers. A large V Victory would be an amendment to the Clean Air Act that abolishes the CAFÉ provision all together.

CAFÉ proves how difficult it is to get rid of bad policy once it is enacted into law. Originally CAFÉ was justified as a means to reduce oil imports at the time of the Arab oil embargo as well as a way to reduce air pollution from mobile sources. At the time, and since, almost all economists have argued that a gasoline tax would be far more cost effective in reducing gasoline consumption and achieving increased efficiency. But legislators and regulators always believe that they know best what is in consumers best interests. That is an example of the fatal conceit.

At the time the first CAFÉ standards were imposed they benefitted Japanese automakers because they specialized in manufacturing small high mileage cars. Domestic automakers were forced to retool and make substantial investments to manufacture small cars and sell them at a loss to induce buyers to purchase them. The larger effect was to make domestic automakers less competitive.

The other effect that was well documented was to increase highway fatalities and injuries because physics tells us that lighter vehicles hit by heavier ones will sustain more damage. In spite of this fact, pressure continued to increase CAFÉ mileage standards. In 2007, Congress passed energy legislation that mandated an increase from 22.2 mpg to 35 mpg in light duty vehicles. In 2009, the wrong-headed Supreme Court decision on CO2 emissions allowed the Obama Administration to put CAFÉ on steroids by raising the standard to 34.1 mpg and then 54 mpg by 2025 as a weapon to fight climate change.

Since California had the worst air quality in the nation and had more stringent air quality standards at the time the Clean Air Act was passed, the Act contained a provision that allowed California to apply for a waiver to impose stricter auto emissions than federal standards. Over time, its standards for low emission vehicles were adopted by the auto industry. Over the past 40 years, California like all other parts of the country has made tremendous progress in improving its air quality, especially in the LA Basin which is challenging because of its physical geography and population growth. A 20- year study by the University of Southern California that was published in the New England Journal of Medicine reported in 2015 that “decreasing air pollution in Los Angeles has led to healthier lungs for millennials when compared to children in the ’90s. … Ozone was below the federal eight-hour standard for most of Los Angeles and the coastal basin and exceeded the standard fewer than 20 days a year. … It’s an environmental success story.”

Since 1973, air quality in the US has improved dramatically as emissions standards from stationery and mobile sources became more binding. To justify ever more restrictive emission standards from light duty vehicles and trucks. EPA and its environmental supporters found ways to create health benefits out of thin air. In the case of climate change which California uses as its justification for tighter standards and opposition to the EPA proposed rollback, any benefit, which is doubtful, is well within the margin of measurement error.

In issuing its phase1 CAFÉ standards for model years 2017-2021, EPA and the National Highway Transportation Safety Administration estimated that the annual implementation costs would range from $5.4 to $7.6 billion. The costs for the standards that are being rolled back would likely be as high if not higher since EPA assumed technologies that do not exist or which have not proven commercially practical. Since the higher costs of CAFE are passed on to consumers through high prices for vehicles they represent an involuntary redistribution of discretionary income.

Advances in automotive technology some of which has been forced by the CAFÉ will continue because of on going R&D and the forces of competition. Technology forcing by government is a blunt tool that produces unintended consequences exceeding intended ones.